Payroll Rules and Regulations in Australia: A Complete Guide

With its flourishing economy and employee-friendly business environment, the companies in Australia are attracting people from different regions. But the process of onboarding to setting up payroll is a hectic task. Similar to other countries, the payroll policies and procedures in Australia have to be followed by the employer to avoid hefty penalties.

Here is a step-by-step guide to managing payroll in Australia and what employers must keep in mind when setting up a payroll system for employees.

The calculation of payroll in Australia can include many steps that depend on the employee payment types and necessary deductions. The general payroll process includes gross pay based on the working hours and the pay rates. Referring to this information, an employer can make the required deductions to meet the net payment figure.

However, it is essential to follow the steps to ensure that employees receive the correct net pay. This will also ensure that the tax information is submitted correctly.

Some of the more common elements of a salary structure according to the payroll policies and regulations in Australia:

CTC

Cost to Company (CTC) is not the same as the in-hand salary for an employee. The CTC includes other components like the basic salary, HRA, employee provident fund, special allowances, etc.

Gross Salary

The gross salary is calculated before tax deduction or other deductions. The gross salary usually includes dividends, basic pay, or other differentials.

Net Salary

This is also known as the salary an employee takes home after deducting TDS or any other miscellaneous deductions per company norms.

Basic Salary

This is known as the employee’s basic income, which constitutes 35-50% of the total salary. The basic salary is calculated based on the employee’s designation and the industry in which they belong. This is the remuneration paid before any deduction or increase in salary (allowances, overtime fees, or bonuses).

Allowances

This is the remuneration payable to the employees throughout their job duration. Moreover, the allowances can be taxed on a full or a partial basis. The allowances are associated with limits that vary across companies, in keeping with their policies. Some of the standard allowances are:

• Dearness Allowance
• Conveyance Allowance
• Medical Allowance
• House Rent Allowance
• Leave Travel Allowance

Superannuation

This term is used for employer-supported and self-employed contributions to comply with Australia’s superannuation entities and retirement savings accounts. Every employer must participate in the superannuation fund.

Setting up payroll for the first time can be overwhelming. Here’s a checklist to start the process –

1. Decide whether you would like to outsource payroll or do it in-house. Doing it in-house can give more control and save money. However, outsourcing to a reliable accountant or payroll service provider can make your job easy and faster.

2. Gather information from the employee like employee’s name, address, tax file number, joining date, the basis of employment, wage or salary, bonuses, benefits, leave entitlements, etc.

3. Understand the national minimum wage and National Employment Standards (NES) Awards. This will help you to ensure that employees’ minimum entitlements are covered.

4. Finalize the tax required to be deducted from the employee’s pay.

5. You have to decide which fund must be used as the default for the employees. This needs to be finalized before the joining date of the employee. The superannuation obligations include the payment of the super guarantee.

6. Learn the obligations associated with Single Touch Payroll (STP). The STP means that the payroll information has to be reported to the ATO in real-time along with each pay run.

7. The super purposes and tax are levied differently for employees and employers. Getting it wrong may lead to incurring penalties.

8. The next step is to decide the pay schedule. It can be weekly, fortnightly, or monthly. To ensure that the payment is not delayed at your end, it is recommended to set reminders or schedule recurring payments by direct deposit.

9. Once the payment is processed, you are responsible for issuing a payslip to your employees. The payslip can be in electronic form or hard copy, within one working day of payday, or might include specific details.

As per the workplace laws, you have to keep accurate and complete records for seven years for all the employees. You have to ensure that the payroll system has a backup of all the data.

1. Choose a payroll system

In Australia, three basic payroll systems are used – manual payroll, outsourced payroll, and payroll software.

• Manual payroll: This is usually processed manually, like on paper or a spreadsheet
• Outsourced payroll: This means that an external resource is hired to manage everything starting from the payroll taxes and bookkeeping
• Payroll software: This may vary according to the plan or product. Usually, a software system offers everything, starting from basic payroll assistance to other services like time tracking.

Before choosing the ideal system for payroll in Australia, consider different factors like business growth, employee benefits, and the complexity of your state’s payroll taxes. If the system is complicated, you will be required to either outsource or purchase the software.

2. Plan a payroll policy

Before finalizing the payroll policies and procedures in Australia, the foremost step is to review the local labor laws, state overtime laws, and federal labor laws. One of the most common FLSA violations is unpaid overtime, which is most likely to happen when you don’t know the rules.

A few things to add to your payroll policy:

• Pay dates may also include the length of each pay period and the day when you pay the employees after that
• How you are going to pay employees – either by direct deposit or paper check
• Information about payroll deductions and withholdings and how this can benefit your offer will impact employees’ paychecks.

3. Collect employee information

An employer must have the W-4s, I-9s, and state withholdings of their employees. These documents are vital to getting an employee’s personal information, the Social Security Number, and tax filing status.

If your payroll in Australia has benefits like health insurance or retirement savings, you will need documents to show that the employee also has approved additional deductions. Lastly, if you are willing to offer a direct deposit to your employee, you will need to collect their banking information.

4. Set up a direct deposit

This service isn’t free. However, it’s the most common mode of payment because it’s convenient for both employees and employers. As an employer, you can set up a direct deposit through the business’s bank directly or via the payroll service provider.

If the employees opt for the direct deposit, they’ll have to provide information like the bank’s name, account number, account type (checking or savings), and your bank’s routing number. The next step is to update the information to the payroll software or the bank.

5. Set up a time tracking system

According to the FLSA, an employer must maintain accurate records of work hours for all non-exempted employees. In most cases, the non-exempt employees are paid hourly. To keep these records, you can track the hours manually and ask the employees to write down when they start working.

Otherwise, you can use time tracking software for maintaining employee timesheet records. Either way, you can train your employees to track their time.

6. Collect employee timesheets

Before starting the first payroll in Australia, collect the employee time cards. In the case of paper time cards, the process of calculation and checking for errors can be lengthy. However, if you opt for payroll software, the process becomes seamless and faster.

7. Approve and submit the employee payroll

Giving approval is one of the crucial steps when running payroll for hourly employees. During this process, you have to check the authenticity of the hours invested by the employee. Once all the employee time cards are checked, you can run the payroll and issue payments to the employees.

8. Report and update payroll records

Once you have initiated the checks, it is time to update the payroll records. The records must show that the federal income is withheld by you, Social Security, and Medicare taxes from employee wages. You will also be required to show the tax contributions made.

• The maximum working week in Australia is 38 hours. However, an employer can make reasonable requests to employees to work beyond their allotted hours. But in this case, the employer must pay overtime of 150% of the hourly rate for the first three hours. And 200% must be paid for work undertaken on Sundays.

• Employers must also take care of the worker’s compensation insurance in case of accidents incurred at the workplace.

• An employer has to pay severance pay to employees who have to stay for at least a year. The rates may differ between four and 16 weeks of salary, depending on the length of employment.

• In Australia, there is also a retirement funding system known as Superannuation. An employer has to contribute (10.5% till 30th June 2023) a fixed amount of each employee’s usual salary in this case. This amount can be availed upon retirement.

• The employer has to also contribute towards the social security of the employee. In Australia, an employee is entitled to four weeks of paid leave every year. In addition to this, there is Long Service Leave and paid parental leave.

According to the payroll policies and procedures in Australia, the employees are paid on a weekly, bi-monthly, or monthly basis.

There are no specific requirements regarding the time when an employee needs to be paid. However, some of the standard payroll cycles followed in Australia are:

• Monthly – From the 28th to the 30th of the month
• Bi-weekly – Every second week on any agreed day (usually it is Wednesday or Thursday)
• Bi-monthly – Every 15th and 30th

There are different options to process payroll in Australia that an employer can choose from:

• Large companies can opt to pay their employees on their own. However, before doing this, the employer must set up a subsidiary, register the business and hire a team for handling the payroll. Additionally, the employer must also have a keen understanding of tax, withholding, and other requirements related to payroll.

• An employer can also hire an Australian payroll processing company to take over and manage the payroll. However, you will remain the employment outsourcing service, so all the issues related to compliance and taxation must be managed by you.

• Alternatively, you can collaborate with a global employment solution provider like Multiplier.

In Australia, an employee is entitled to the following benefits:

Time Off Work

• Holiday Allowance: These are paid days off given on public holidays. In exceptional cases, the employees can be asked to work.
• Annual Leave: 4 weeks of paid leave every year is given to an employee. In addition to this, an extra week is given to shift workers.
• Community Service Leave: Under this, an employee can get up to 10 days of paid leave for the jury service. (After ten days, it is unpaid) In addition, unpaid leave is also provided for voluntary emergency work.

Medical Leave

According to this, an employee is entitled to 10 days of paid personal (sick) / caregiver’s leave, two days of unpaid caregiver’s leave, and two days of compassionate leave.

Termination Terms In Australia

Resignation/ End of Service Payment: This is a transitional entitlement for the employees, outlined as a pre-modernized applicable award. The development of a uniform national long service leave standard is still pending.

Australia Payroll Processing Company

You can partner with a global PEO company like Multiplier to get the most out of Australia’s payroll policies and procedures. If you are interested in learning more about the process, contact us today.

Why take the hassle of payroll management when you can easily outsource with Multiplier. Multiplier is an all-in-one global HR partner who can help you employ, pay and manage your newly onboarded international team.

We have a team of professionals who can support you as a co-employer to manage employee payroll. Locally established in 150+ countries, industry leaders trust us for their global payroll and compliance.